Firm's Overall Financial Analysis

Find attacheed excel spreadsheet, need assistance Summarizing the firm's overall financial position on the basis of your findings in Part B.

© SolutionLibrary Inc. 9836dcf9d7

Solution Preview

...y result in the company loaning from their lenders, increasing the company's total liabilities. As a result, debt ratio increases.

The time-interest-earned (TIE) ratio measures the extent to which operating income can decline before the company is unable to meet their annual interest costs. TIE ratio also indicates the possibility of going bankrupt. This is because if the company fails to pay interest, the creditors may bring legal action, which may result in bankruptcy. The TIE ratios for the company for 2004 to 2006 are all low, meaning that the operating income is less in proportional to the company's large interest charges. That is, the interest charges are covered by a low margin of safety. Hence, the company will be in difficulties if they borrow additional funds. This conclusion is parallel to what the company's debt ratio indicates above.

The company's inventory turns over as twice as faster as the industry average. This indicates that the company generates sales efficiently. This is reflected by the company's faster total assets turnover in relation to the industry average.

The company's gross profit margins in 2004 to 2006 are higher than the industry average, but at a slower rate. This shows that the company has fewer expenses on direct cost of sales, increasing gross profit, causing the company's gross profit margin to increase. ...